Author Topic: KMI - Kinder Morgan  (Read 134117 times)

Myth465

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Re: KMI - Kinder Morgan
« Reply #150 on: March 27, 2014, 06:07:48 PM »
I believe Value is correct.

In my rushed DD, I did note KMI has a pretty sizable E&P business which generates great returns.

Refer to Page 11 - Only 30% of the CO2 division is related to the low margin transport business. This amounts to 7% of KMP CF.
The CO2 oil production accounts for 17% of cash flow for KMI, and 70% of the CO2 division. The division also has ROIC of 26%, about double the other businesses. I am guessing the 30% does 12-14% ROIC, and the 70% does 30% plus ROIC. This is with what looks like some pretty crappy forward hedges. Half of the expansion capital of $1 billion will go towards EOR.

http://www.kindermorgan.com/investor/presentations/0312_JPM.pdf


Myth465

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Re: KMI - Kinder Morgan
« Reply #151 on: March 27, 2014, 06:09:41 PM »
I believe this announcement here may be incremental.

http://seekingalpha.com/pr/9374983-kinder-morgan-to-invest-approximately-1-billion-to-expand-vast-co2-network

So perhaps its $2 billion with $1.3 going to wells, and the balance going to pipelines. Though I am not sure.
Either way, the more they put into 30% ROIC projects, the more we make.

ItsAValueTrap

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Re: KMI - Kinder Morgan
« Reply #152 on: March 27, 2014, 09:24:02 PM »
To be fair, KMI calculates its returns on capital in a wonky fashion.  It's described in the appendix presentation.  They add back D&A and subtract sustaining capex.

A pipeline will see solid cash flows for maybe 60+ years.
An oil well will see declining cash flows over maybe 15-40 years.  (For EOR wells it could be less?)

Kinder Morgan's metric doesn't seem to be great for comparing the two types of assets.  A 10% return on a pipeline is much better than a 10% return on an oil well.  An oil well returning 10% one year will eventually return 9%, 8%, 7% etc. in future years.

I think a better metric would be the IRR (internal rate of return) figure given in the presentation for the CO2 segment.  It puts the total business IRR at 29.2%.

See slide 35 at
http://www.kindermorgan.com/investor/presentations/2014_Analysts_Conf_06_CO2.pdf
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rogermunibond

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Re: KMI - Kinder Morgan
« Reply #153 on: March 28, 2014, 07:52:35 AM »
KMP-CO2 is pretty slim on the E of the E&P equation.  They buy long-discovered fields from the majors and work them over with CO2 flooding.  Semantics I guess.

Thanks Myth for finding that slide that splits out the oil/gas EOR side from the CO2 sales, marketing, transport side.

CorpRaider

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Re: KMI - Kinder Morgan
« Reply #154 on: April 16, 2014, 02:45:13 PM »
I missed most of the CC but just tuned in to hear that $55MM of the new ($100MM) authorization during the quarter went to repurchase warrants.  The final $94MM of the prior authorization went to common early in the Q (prior to the analyst day, I believe).
« Last Edit: April 16, 2014, 02:47:28 PM by CorpRaider »

bizaro86

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Re: KMI - Kinder Morgan
« Reply #155 on: April 16, 2014, 03:44:08 PM »
An oil well will see declining cash flows over maybe 15-40 years.  (For EOR wells it could be less?)

In my experience, wells converted to EOR have lower declines than new drills. They are especially much better than new wells in tight rock/shale. KM's style of E&P is actually the only type I think can be reasonably held in an MLP.

sys

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Re: KMI - Kinder Morgan
« Reply #156 on: April 17, 2014, 12:03:46 AM »
I missed most of the CC but just tuned in to hear that $55MM of the new ($100MM) authorization during the quarter went to repurchase warrants.  The final $94MM of the prior authorization went to common early in the Q (prior to the analyst day, I believe).

interesting.  317 million warrants remain.

saltybit

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Re: KMI - Kinder Morgan
« Reply #157 on: April 26, 2014, 03:31:27 PM »

sys

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Re: KMI - Kinder Morgan
« Reply #158 on: April 26, 2014, 04:49:14 PM »
thank you, that was very useful to read.  i don't think it is valid to ignore the dividends.  i don't know anything about option pricing, but it seems to me the easiest adjustment would be to add the expected dividends to the strike price.

using the calculator you linked, and the assumptions for your conservative valuation, if i adjust the strike up by $5 for expected dividends, i get a valuation of $3.14 instead of $4.81.  still attractive to me.

ItsAValueTrap

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Re: KMI - Kinder Morgan
« Reply #159 on: April 28, 2014, 09:42:58 AM »
1- The following webpage explains dividends and options:
http://www.investopedia.com/articles/optioninvestor/03/121003.asp
"Dividends, Interest Rates And Their Effect On Stock Options"

2- Something else that would affect the value of an option would be future changes in the dividend rate.

If for some reason the company dramatically changes its dividend payout, the value of the options will be affected.  If the company is doing badly, it may or may not decide to cut its dividends.  Some companies will continue to pay a dividend even if they are distressed.  Companies that do well often increase their dividends.
Some companies go from no dividend to issuing a dividend, so that is probably the area where dividend changes might matter the most.

With Kinder Morgan, you can simplify things by assuming that the dividends will be proportional to the share price.  Dividends going down help the warrants in theory, though the share price will likely go down if dividends go down and the $40 strike price likely won't be reached.  Dividends going up hurt the warrants, though the terms of the warrants will mostly protect you if dividends go up by a lot.
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